Just renting to yourself is not illegal. The problem, or part IRD don't like is if you are obtaining a tax advantage from doing this.

A personal house should be personal, and any attempt to obtain a tax advantage from it could be viewed as tax avoidance.

So if you are looking at moving into the rental, then you need to look at whether an LTC structure is right for you. If you move into the rental and it becomes your long term home, then an LTC is not right, and there could be costs to sell the property to another structure.

Another option might just be to own the property personally, then if you move in, there is no hassles with having to change entity.

I was in a similar situation with my first property. Intially I settled under my own name, lived there for a year and then transferred it into an LAQC (now LTC) and rented it out. I had to pay my solicitor about $900 to transfer the mortgage and title over which is a fairly basic transaction. The bank had no problems with this either. Obviously you will have to budget more to set up your LTC.
If you are planning on buying more than 1 property, an LTC would be the way to go. If you're just thinking of the one with a few flatmates, you shouldn't need to form any seperate entity.

You can live in a house that you "own" and rent to "yourself" perfectly legally and above board.

You can also equally be found by the IRD to be avoiding tax, if you do it wrong and thus end up being much worse off.

On one of the IRD pamphlets (I forget which one) there is even an example of how to do it........The IRD example is (paraphrasing) LL rents IP to sexy tenant.....LL puts the move on tenant and the two start co-habitating....the LL and tenant are now one (kinda) and thus the LL is now living in his own house and paying himself rent.........YES I KNOW.... before anybody says, there is a little more to it than that, but you should be able to get the gist without me having to type every last detail.

One of the "gotcha's" that the IRD have is that pretty much anything you do to reduce the amount of tax you pay can be seen as tax avoidance......thus you need to have another reason for what you're doing and for the tax reduction to be secondary and not the primary motive.
In a lot of cases of course the primary reason is really a convenient lie to tell the IRD and they know it, but as long as neither side admit it everybody can be friends..... A trust for asset protection can be a classic example.

As a citizen, you have an obligation to the country's tax system, but you also have an obligation to yourself to know your rights under the law and possible tax deductions. And to claim everyone of them........ Donald Alexander - Former commissioner of the US IRS.

Cheers
Spaceman

Delightfully in need of some Tender Loving CareBlessed are those who can give without remembering and take without forgetting
Some things are not as they seem, nor are they otherwise